Munger Investment Checklist Part 6: Allocation

Charlie Munger, Warren Buffett’s long-time partner at Berkshire Hathaway, was admired not just for his sharp investment judgment but also for his talent in distilling complex ideas into clear, practical lessons for business, investing, and life. He often reminded investors that lasting success rarely comes from brilliance alone — it comes from disciplined thinking and habits that minimise errors.

One of his most enduring contributions is a “checklist” of mental models — timeless principles meant to help investors navigate uncertainty and make wiser, long-term choices. In this piece, we focus on one of the most critical elements of that checklist: allocation, and how to approach it with prudence.

Munger on allocation

Munger in his book, Poor Charlie’s Almanac, said: “Proper allocation of capital is an investor’s number one job.” To him, where and how you put your money mattered far more than simply having money to invest. Great investors don’t just avoid bad decisions; they actively channel resources to the opportunities with the best long-term payoff.

• Remember that the highest and best use is always measured by the next best use (opportunity cost): Munger constantly reminded investors to think in terms of opportunity cost. Every dollar you invest in one place is a dollar you cannot put elsewhere. That means the “best” choice is not just about whether an investment is good on its own, but whether it beats other uses of that same capital. This discipline keeps you from settling for mediocrity when better opportunities exist.

• Good ideas are rare — when the odds are greatly in your favour, bet (allocate) heavily: According to Munger, truly exceptional investment opportunities don’t appear often. When they do, investors should have the conviction to allocate meaningfully rather than spread capital over several average opportunities that may not give the same payoff in the long run. This doesn’t mean putting all your eggs in one basket, rather, the courage to act decisively when the probability of success is unusually high.

• Don’t fall in love with an investment — be situation-dependent and opportunity driven: Munger cautioned against emotional attachment to any business, stock, or idea. Conditions change, and what made sense yesterday may no longer make sense tomorrow. Rigorous allocation means being flexible, willing to re-evaluate, and ready to shift capital if a better opportunity arises. Loyalty belongs to the process, not to any single investment.

Why it’s important

Allocation is important because ultimately, it’s what determines returns. Even the most insightful analysis won’t matter if capital is allocated poorly. Munger believed that smart allocation was less about chasing many good ideas and more about patiently waiting for a few great ones, and having the discipline to seize them. By understanding opportunity cost, concentrating resources when the odds are favourable, and staying adaptable, investors can maximise long-term gains.